The European Commission is set to adopt a package of proposals to review the Solvency II Directive by July, Didier Millerot, head of the insurance and pensions unit at the Commission, in charge of reviewing the directive, said at an annual event organized by the German Associations of Actuaries (DAV).
This would take the form of proposals to amend the directive’s Level 1, “but we know that many important issues [are] also at Level 2, so we run the process in parallel with amending Level 2”, he added.
The Commission has officially set Q3 as a timeline to adopt the proposals, he said.
“Me and my team are now busy drafting legislative proposals around impact assessment to present to the Commission,” Millerot added.
The legislative proposals put forward by the European Commission will open up a second, potentially complicated phase, of the review process, he explained.
“This [Solvency II] is a directive of the European Parliament and the [EU] Council and the co-legislators have the final say. We will have to go through a long process of negotiations probably with them,” he said.
The Commission currently estimates to end negotiations by the end of next year for member states then to implement the new framework in the national code of law.
“The whole thing should be applicable [at national level] around the end of 2023, beginning of 2024,” Millerot said.
Five key goals
The EU Commission has listed five essential objectives to reform the Solvency II directive.
“The details have not been decided yet as the final decision will have to be taken at a political level by the Commission,” Millerot said.
The first goal is to design a framework to support the insurance industry to participate in the recovery post-crisis and in efforts towards a carbon-free or low carbon economy, he said.
The review wants to make sure that there is “the right balance between prudence on one hand and the ability for insurers to invest and mobilize capital [on the other hand],” he said.
The second goal looks at prudential rules and the risk-based approach, how the framework tackles excessive short-term volatility and the long-term guarantee measures, which is what “initially triggered the review,” he said.
“We are keen to make sure that the framework is as efficient and adapted as possible to the new economic situation, but we will also be fully aware of what will be the impact of introducing a new methodology in terms of the overall capital pressure on insurers.” Millerot added.
The remaining three goals refer to the principle of proportionality, policyholder protection and financial stability with regards to spillover risks on insurance companies.